What is stock? What is stock?

Stock is a type of security that indicates ownership in a corporation and represents a claim on the part of that corporation s assets and earnings. There are two primary types of stocks, common and preferred. Common- A common stock entitles the owner to vote at shareholders meetings and receive any dividends that the company issues. Preferred- A preferred stock doesn t actually confer voting rights, but it does include some rights, but it does include some rights that exceed those of common stock. Preferred has priority in certain conditions, such as receiving dividends before common stockholders in the event that the corporation is going bankrupt.1 What are bonds? Bonds are in few words debt security, almost like and I.O.U. Buying a bond means your lending money to the issuer (government, corporation, etc ). In return for your investment in the issuer, the issuer gives you a bond that guarantees to pay a fixed interest rate till the validity of said bond and repay the initial investment (principal). 2 What are derivatives? There is a bit of a difference with stocks and derivatives, the main one being when you own a stock you own part of a company, now when you own a derivative however, you own nothing. A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. 3

1 2

Buying Stocks for Dummies http://www.investinginbonds.com/learnmore.asp?catid=46&id=2

http://www.investopedia.com/terms/d/derivative.asp#ixzz1pljJnce2